A thought about arm position, Leeneia. You say that you're unconsciously moving your hand to a particular point in space, not to a particular fret - the fret just happens to be at that point. OK then. As the joke goes about how many men it takes to fix a lightbulb, we can hold the lightbulb in place and let the world revolve around us. ;)

If you're currently playing with the waist of the guitar sat on your right leg, like most folk players, try switching to classical position with your left foot raised on a footstool or cushion (or just braced against your right ankle) and the waist of the guitar on your left leg instead. This puts the headstock further away from your body, which means the location that you say your body has learnt will be further down the neck, probably around the fourth fret or so. So your hands are likely to naturally fall into a higher fret position. Slap a capo on there, and see how it goes.

Of course, if you're already using classical position then this won't work. But if you're not, then it might be worth giving it a try and seeing how you get on. Another way of making your body get used to your hands being in a slightly different position would be to play standing up with a strap on the guitar, if you usually play sitting down. Or vice versa if you usually play standing up.

Or it might be that the capo doesn't "feel" like the top of the guitar, because you can see accessible fretboard above it. In that case, maybe tape a stick to the capo so your hand can't easily go past it and you've got something definite to aim for. Or wrap a towel round the neck of the guitar at that point, or have a friend put their hands round the neck at that point, or something like that. If your mind sees it can't get your hand there, and that this position is very definitely the end of the guitar, it might adapt.

I suspect once you've broken that initial block, you'll be OK - it's just how to get past it without stressing yourself out over it. Advice of "practise, practise, practise" is true enough, but practising doing the wrong thing is only going to reinforce the problem. If you can throw your brain a curve which stops it following the same rut, then you've got a better chance of sorting it.

Graham.